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Far East H-Trust invests into 850 room hotel on Sentosa, Moody's rates positive.
Wednesday, 1st October 2014
Source : Far East Hospitality Trust

Far East Hospitality Trust is pleased to announce that FEH Real Estate Investment Trust has entered into a joint venture agreement with Far East Organization Centre Pte, a member of Far East Organization, to participate in the development of a new S$443.8m hotel project located on Sentosa.

This is Far East H-Trust’s first investment in Sentosa and the Trust will hold a 30.0% stake. It is Far East H-Trust’s second investment since its listing in August 2012.

On 12 March 2014, Sentosa Development Corporation awarded a tender for the heritage hotel site at Artillery Avenue, Sentosa to FEOC. In support of Far East H-Trust, its Sponsor, Far East Organization has offered Far East H-REIT the opportunity to participate in the 60-year leasehold development.

Integrating two distinctive hotels - Outpost Hotel Sentosa and Village Hotel Sentosa, they will collectively house 850 guest rooms.

Outpost Hotel Sentosa will cater to travelers looking for a stylish upscale product, while Village Hotel Sentosa will present an experiential stay for families, leisure and meeting groups where they can have the opportunity to discover the rich cultures and heritage of the surroundings.

Mr Gerald Lee, Chief Executive Officer of FEO Hospitality Asset Management Pte. Ltd., the manager of Far East H-REIT commented, “This presents an opportunity for us to invest in two quality hotels which are conveniently located in a leading leisure and lifestyle destination in Singapore at an attractive cost. Our participation in the project will also allow us to leverage on our Sponsor’s strong development capability, being Singapore’s largest private real estate developer across multiple asset classes. We believe that the development is an attractive investment that will strengthen our portfolio and drive stable income for our Stapled Securityholders in the years ahead.”

The hotels are well-positioned to benefit from Sentosa’s continuous rejuvenation, which includes efforts by the SDC to refresh the island’s offerings and to review development plans in the various precincts.

The Wings of Time, a signature night extravaganza set on Siloso Beach, was launched in June 2014. Singapore’s first Madame Tussauds and a refreshed Images of Singapore attraction will open later in the year.

In addition, KidZania, an indoor family edutainment theme park, is expected to open near the Palawan Beach in 2015. Far East H-Trust’s investment in the 30.0% stake will be fully funded by debt and the development is expected to be completed in 2018.

Moody's: Far East Hospitality Trust will benefit from its hotel development joint venture
Global Credit Research - 24 Sep 2014

Moody's Investors Service says that Far East Hospitality Trust's (FEHT, Baa2 stable) hotel development joint venture with Far East Organization Centre Pte Ltd (FEOC, unrated) will improve FEHT's operational profile in the long term, while the increase in leverage can be accommodated in its current Baa2 issuer rating.

"We expect the development project, once completed, will be yield accretive, due to the relatively low cost of investment. In addition to adding diversity to FEHT's portfolio, the project will also enhance Sentosa's underserved mid-tier hotel offering, with mid-tier hotels making up only about 8% of existing hotel supply," says Jacintha Poh, a Moody's Assistant Vice President and Analyst.

The project will consist of two hotel developments -- Outpost Hotel Sentosa and Village Hotel Sentosa -- that will add 850 keys to the hospitality space in Sentosa, about 620 of which will be for mid-tier hotels. As of end-December 2013, only 245 keys out of 3,042 keys were targeted at the mid-tier segment.

"Although FEHT's financial metrics will remain within our rating threshold for the next 12-18 months, we expect its leverage and interest coverage to be affected gradually over the next two years as the project will not generate income before 2018 and the development costs will be fully debt funded," says Dylan Yeo, a Moody's Associate Analyst.

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